Retrocessions and execution-only - Geneva courts deny restitution


The leading decisions of the Swiss Federal Supreme Court on restitution of retrocessions are well known (cf. notably 137 III 393 and 4A_355/2019).

They have in particular clarified the following points:

  • Firstly, the fact that the retrocessions must be returned in the case of an asset management mandate pursuant to Art. 400 of the Swiss Code of Obligations (CO).
  • Secondly, the fact that a waiver of such restitution may be effective, but only subject to rather strict conditions.

However, it is still an open question whether such an obligation of restitution exists in the case of an execution-only mandate or even an investment advisory agreement (4A_601/2021).

In the absence of precedents from Swiss Federal Supreme Court, cantonal courts appear to take very different approaches.
While the rulings of the Zurich Commercial Court (Handelsgericht) – which considers that retrocessions must be returned even in the case of an execution-only contract – have been widely publicised and commented on, the impact of cantonal decisions adopting an opposite solution has so far remained very marginal.

Following the Commercial Court of the canton of St. Gallen – which already held in 2020 that restitution of retrocessions is not required in the case of execution-only relationships – the Court of First Instance of the canton of Geneva has now settled the question.

In a Judgment JTPI/4669/2023 of 19 April 2023 *1, which has now become final and whose content has since then been at least twice confirmed (JTPI/7787/2023 of 30 June 2023 **2/ JTPI/10949/2023 of 26 September 2023), the Court of First Instance held that since the underlying purpose of the obligation of restitution of the advantages under Article 400 of the Code of Obligations is to prevent risks of conflicts of interest, there is no apparent reason for restitution in the case of execution-only and/or advisory relationships: "such an obligation may be admitted to exist, at most, in connection with retrocessions collected on transactions performed by the client pursuant to the advice of the bank, but not on transactions that were decided upon and ordered by the client without any encouragement by the bank and which were not the subject matter of any specific investment advice (JTPI/4669/2023, Par. E). ***3"

In other words, in the opinion of the Court of First Instance, an execution-only relationship excludes restitution of retrocessions. Furthermore, the mere existence of an advisory relationship is not sufficient for restitution to be required.

Besides the principle of restitution, the Court of First Instance also analysed the validity of a waiver clause that does not indicate the amount of the retrocessions in reference to a percentage of the assets under management but rather in reference to an applicable percentage per class of assets.

The Court of First Instance held that the case law of the Swiss Federal Supreme Court – and thus, the requirement of indicating a percentage of the assets under management – was only applicable in the case of an asset management mandate. Therefore, the announcement of the percentage per asset class enables the client to know the order of magnitude of the retrocessions collected by the bank in connection with the assets. In fact, as it had been alleged by the bank in this case, the amount of retrocessions could be easily determined by applying a simple "rule of three", i.e. by applying the percentage indicated in the waiver clause to the total amount of the corresponding assets (which is shown in the portfolio statements, in particular).

That opinion is convincing. Particularly since – in the absence of an asset management mandate – the client will in the end make decisions regarding the investments, so that the bank cannot know in advance the proportion of investments in each type of product. In practice, it should be remembered that the parameters underlying the calculation of the retrocessions generally vary as a function of the type of investment products, regardless of the banks' wishes. It would be all more impractical to require the banks to indicate – at the beginning of the relationship – a percentage related to the total assets under management, since the banks neither know the composition that the portfolio will have nor have any means of influencing it.

In our opinion, the decisions of the Court of First Instance provide a coherent solution and demonstrates a good level of coordination between its Chambers (Note: the Geneva Court of First Instance has 26 Chambers in total). In fact, the Court of First Instance seems to have adopted a position of principle on restitution of retrocessions in the case of execution-only contracts, a position which differs from that of the Zurich courts. In all likelihood, these issues will ultimately be decided by the Swiss Federal Supreme Court.

*1 Schellenberg Wittmer SA represented the bank in that case.
**2 An appeal was lodged against that judgment.
***3 The Court of First Instance did not discuss the applicability of the Financial Services Act, since the retrocessions were collected before it entered into force in that case.


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